Back in 2018, This is Money received an e-mail from a reader which started: ‘You need to have a section dedicated to crypto technology and currencies.
‘This is now a market exploding with ICOs, new currencies daily, technological advancements and a market worth over $550billion.
‘The technology is the biggest technological leap since the founding of the internet.’
It highlighted how quickly the cryptocurrency phenomenon exploded in that time and how much some investors believed in the technology.
But, stories of coins going missing, murky practices and price swings have shown just how volatile the world of bitcoin, ethereum, ripple and co are.
Some coins have historically seen falls by 25 per cent in one day – a huge whack for any investor, experienced or otherwise, while many coins were at peak prices at 2018, and haven’t recovered as of May 2020, the date we’ve updated this guide.
If you do buy into bitcoin
Find out how bitcoin and the blockchain works, so that you have some understanding of the system, the ledger, the major players and the public and private key elements.
Remember bitcoin yields nothing and its main source of value is scarcity. Most bitcoin activity is trading not investing.
Research coin wallets, the digital vaults where cryptocurrency is held, and consider security carefully. Bitcoins have been stolen before, understand how this happened.
Be prepared for extreme volatility. The price can move by 20 per cent in one day and you could easily lose half of your cash in a far quicker time that investing in the stock market.
What is bitcoin?
The digital currency that most will be familiar with is free from government interference and can be shared instantly online. It doesn’t rely on trusting one central monetary authority.
The underlying technology is blockchain, a financial ledger maintained by a network of computers that can track the movement of any asset without the need for a central regulator.
SET UP A WALLET
Search engine data shows that queries for ‘buy bitcoin’ outstripped ‘buy gold’ in the latter part of 2017.
This is Money data showed just how many people have been searching some of the most popular digital currencies.
The price of bitcoin surged from around $1,000 at the start of 2017 to near the $20,000 mark in December 2017, bringing it to the attention of the British public.
To get a cryptocurrency, you need a wallet – this is where the digital currency lives.
Because it is a relatively new financial craze, it is hard to say which firms offering wallets are reputable while a number have disappeared or lost customers cash, including Mt.Gox in 2014.
Meanwhile, in 2016, a hack saw the Bitfinex exchange platform lose 120,000 bitcoin.
One of the biggest websites to deal in bitcoin is Coinbase – an online exchange, which also has a wallet option. It has a user friendly app and two-factor authentication.
Another is Blockchain.info which is similar to Coinbase. They are both backed with millions in venture capital funding. Visit coinbase.com/signup and blockchain.info to find out more.
However, it only deals with the most familiar digital currencies – if you want to invest in an obscure one, it is much harder (as we explain below).
Another popular wallet is Electrum, which is a wallet for desktop computer use.